How Managing Supplier Relationships Reduces Revenue Cycle Costs

Karen Minich-Pourshadi, for HealthLeaders Media , April 14, 2011
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There are a multitude of stages in selecting a vendor, often starting with a spend analysis and ending with a contract. But there’s another step after the contract is signed that most healthcare providers ignore—supplier relationship management—and it can do wonders when it comes to reducing your revenue cycle costs. 

SRM is an approach to managing a business’ interactions with the vendors that supply goods and services by creating a common communication and goal-setting structure between the hospital and supplier, both of whom frequently use different business practices and terminology. In doing so, both the hospital and the vendor increase the efficiency in acquiring goods and services, managing inventory, and processing materials. Advocates of SRM say it lowers production costs and improves quality.

One such advocate is Intermountain Healthcare. The 24-hospital, $3.6-billion-net-revenue Utah-based healthcare system has embraced SRM as part of its supply-chain management and is seeing benefits. Brent Johnson, vice president of supply chain and imaging services and chief purchasing officer, has found that building a relationship with his vendors opens a variety of opportunities and cost savings.

Back in 2003, Johnson joined Intermountain Healthcare after working in the utility industry. On board only a short while, Johnson pledged to knock $20 million off of the bottom line each year over four years. To help him achieve this $80 million goal, 25 new hires were added, many of whom were brought in to help do analytics, strategic sourcing, and supplier relationship management.

“When I got to Intermountain, I asked who the top 10 biggest suppliers were and who was managing them. They didn’t have an answer,” he says. The system had a $1 billion annual nonlabor spend, yet no one was managing the top contracted vendor. The reason? The system was overrun with vendors, working with nearly 12,000. Moreover, contract negotiations and vendor selection (often based on physician supplier preference) was done by a variety of personnel at each hospital.

As part of their supplier relationship management, Johnson and his team communicated what the goals of the system were, and they looked for opportunities for the vendors to work with them to achieve success.

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